Securities Fraud Enforcement Act of 1988
The Securities and Exchange Act of 1934, a.k.a. the '34 Act, made it formally illegal to use inside information to trade stocks.
Amazingly, that used to not be illegal. Or at least not explicitly so. And it wasn’t enforced. Investing was a clubby white man’s insider’s gig. And the boyz took care of the boyz. Since people could make a lot of money with insider information and thought they wouldn't get caught...like, who's going to know you overheard the CEO of Big Company talking about a merger in a Denny's washroom?
Some folks pretty much ignored the law. The 1988 law was basically Congress saying, "You guys! We're really serious about this." This new legislation added some hefty penalties if you get caught. People still trade on insider information though, so...yeah. Some were just born to be bad.
Related or Semi-related Video
Finance: What is the 1934 Securities And...14 Views
Finance a la shmoop what is the 1934 Securities and Exchange Act? okay if
you're going to exchange securities like trade stocks and bonds among yourselves [Stocks and bond exchange between man and woman]
well then there have to be rules right yeah you'd think well there didn't used
to be and then aunt 1934 came along and well she set the table the key element [Aunt setting dinner table]
that 34 Act created was the SEC itself it's not a football conference near
Florida it was a wise creation because it recognized that well whatever the
world looked like in 1934 it was highly likely that 50 years later it would look
a whole lot different and while horses and buggies went away [Horse and carriage disappears]
while that wasn't the case for stocks and bonds and keep in mind that another
Act was created a year earlier cleverly named yes the Securities Act of 1933
while that act focused on primary shares that is original shares like the kind
sold in an IPO well the 1934 Act was all about shares
traded after that initial set it's called the secondary market where
secondary shares are traded not primary ones well this new law made the New York [Group of people dealing in stock market]
Stock Exchange a big deal with big powers and made insider trading illegal
and believe it or not it really wasn't illegal back then and it you know thus
paved the way for many exciting Wall Street movies where greed is sometimes
good and sometimes not [List of Wall Street movies]